China: growth stalls

 After a dynamic start to the year, growth in China has stalled, impacted by the weakness of the international economy and a lack of consumer confidence. Indeed, in recent months, retail sales and household consumption have slowed sharply, following the recovery at the start of the year and the end of the health confinements. Two factors are having an impact on private consumption. Firstly, real disposable household income has slowed and has grown only slightly since the start of the year (and this is not the fault of inflation, which is close to zero). Secondly, the labour market has not fully recovered, and unemployment remains high, particularly among young workers. This situation favours savings, which remain at record levels, to the detriment of consumption. While some sectors are not experiencing a crisis, car sales are down over the first four months of the year and telephone sales are down by 5%. Lastly, the ongoing crisis in the residential property sector, and in particular house prices which are still not rebounding, is encouraging households to be very cautious in their consumer spending. Business activity is also disappointing, falling well short of forecasts. Exports slowed in May, in line with the weakness of the international economy. Finally, the results of Chinese companies are down sharply, which is not conducive to productive investment. The Chinese authorities are aware of the weakness of general demand and are supporting activity and household purchasing power by increasing public deficits. At the same time, the central bank is likely to lower its key rates further to support the property sector. All in all, it is no longer at all certain that the Chinese economy will be able to achieve its 5% growth target this year.